Early inheritance for one - how to equalize disbursement?

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g2morrow
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Re: Early inheritance for one - how to equalize disbursement?

Post by g2morrow » Fri Feb 14, 2020 2:21 pm

Afty wrote:
Fri Feb 14, 2020 1:07 pm
Whatever plan you come up with, make sure to run it by all 3 of the siblings (and Mom of course) and get agreement on it. Fairness is subjective, and things will go poorly if one of the siblings thinks the plan is unfair, even if it seems fair to the other 2.
I already figured out long ago I can't make everyone happy so as long as Mom is happy, I'm fine with whatever.

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g2morrow
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Re: Early inheritance for one - how to equalize disbursement?

Post by g2morrow » Fri Feb 14, 2020 2:24 pm

Random Poster wrote:
Fri Feb 14, 2020 1:51 pm
Perhaps I’m just grumpy today, but I think that maintaining family harmony is overrated.

I also think that when one child unilaterally (effectively) changes the deal after the fact, any concern for fairness should be ignored.

So what would I do, given the new information?

Split the inheritance two ways, between the two children that didn’t get the advance inheritance, and cut the sister/daughter out completely.

She had her chance to be honest and fair and she declined to do so. Now (or when mom dies, actually) she gets to face the consequences for doing so. And I’d say so in the will so that if and when a will contest comes, the rationale is made clear to the daughter/sister.
She has already done that to one child and considered it with this one but then decided not to. Personally, I thought it was the right choice.

bryanm
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Re: Early inheritance for one - how to equalize disbursement?

Post by bryanm » Fri Feb 14, 2020 2:32 pm

g2morrow wrote:
Fri Feb 14, 2020 2:20 pm
So I see what you're saying and you're correct, its just slightly more then 123's way. I ran some numbers on a third way mentioned earlier.

IF the early inheritance is 10% of the beginning value of $1mil and the end value of assets is $1.75 mil the new estimated gift would be $175k. This 175k would be given to each brother and the rest ~ 1,750,000- (175,000x2) would be equally divided by 3 which is what the sister gets $466,666.

123's way - early inheritor $402,500 - 23%
bryanm' way - early inheritor $453,000 -25.89%
3rd way - early inheritor $466,666 - 26.67%

So in each calculation, the early inheritor would get a little more money and the last way might be the easiest to dole out and get the least complaints.

My head feels likes its gonna explode - I feel as long as its close to being fair thats good enough. Man, I don't get paid enough for this.
3rd way seems close enough, and if everyone thinks it's fair then more's the better. Kuddos to you for taking on this. Good luck and I hope everyone ends up still happy with one another.

TSR
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Re: Early inheritance for one - how to equalize disbursement?

Post by TSR » Fri Feb 14, 2020 3:19 pm

Yuba wrote:
Thu Feb 13, 2020 3:32 pm
Another option if possible (without a tax impact) is to separate out an account with 2x of the amount the one person got.
Have the beneficiaries on that account be the 2 people who didn't get the early disbursement only.

That way, the regular account would have 3 beneficiaries, and the special account would only have 2. Have the special account be the last account where money is withdrawn from since it was already given to the first person, and should be used last for expenses.

My $0.02 worth.

Rick dba Yuba
The more I read of this thread, the better this option seems to me.

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Doom&Gloom
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Re: Early inheritance for one - how to equalize disbursement?

Post by Doom&Gloom » Fri Feb 14, 2020 3:23 pm

TSR wrote:
Fri Feb 14, 2020 3:19 pm
Yuba wrote:
Thu Feb 13, 2020 3:32 pm
Another option if possible (without a tax impact) is to separate out an account with 2x of the amount the one person got.
Have the beneficiaries on that account be the 2 people who didn't get the early disbursement only.

That way, the regular account would have 3 beneficiaries, and the special account would only have 2. Have the special account be the last account where money is withdrawn from since it was already given to the first person, and should be used last for expenses.

My $0.02 worth.

Rick dba Yuba
The more I read of this thread, the better this option seems to me.
+1

As someone who has seen his in-laws faced with a very similar predicament, I wish they had thought of this one.

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g2morrow
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Re: Early inheritance for one - how to equalize disbursement?

Post by g2morrow » Fri Feb 14, 2020 3:40 pm

Doom&Gloom wrote:
Fri Feb 14, 2020 3:23 pm
TSR wrote:
Fri Feb 14, 2020 3:19 pm
Yuba wrote:
Thu Feb 13, 2020 3:32 pm
Another option if possible (without a tax impact) is to separate out an account with 2x of the amount the one person got.
Have the beneficiaries on that account be the 2 people who didn't get the early disbursement only.

That way, the regular account would have 3 beneficiaries, and the special account would only have 2. Have the special account be the last account where money is withdrawn from since it was already given to the first person, and should be used last for expenses.

My $0.02 worth.

Rick dba Yuba
The more I read of this thread, the better this option seems to me.
+1

As someone who has seen his in-laws faced with a very similar predicament, I wish they had thought of this one.
How could I arrange this as the bulk of her assets are in a single taxable account? I could open another taxable account and do that but her trust would still have to be updated. I dont' think there is any way of getting around that.

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8foot7
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Re: Early inheritance for one - how to equalize disbursement?

Post by 8foot7 » Fri Feb 14, 2020 4:17 pm

g2morrow wrote:
Fri Feb 14, 2020 11:26 am
If my mother goes with the adjusted for time option, my sister will probably be upset. That 110 could grow significantly over time.
Tough cookies would be my answer; the rest of us didn't passively screw over mom and dad.

bryanm
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Re: Early inheritance for one - how to equalize disbursement?

Post by bryanm » Fri Feb 14, 2020 6:12 pm

g2morrow wrote:
Fri Feb 14, 2020 3:40 pm
Yuba wrote:
Thu Feb 13, 2020 3:32 pm
Another option if possible (without a tax impact) is to separate out an account with 2x of the amount the one person got.
Have the beneficiaries on that account be the 2 people who didn't get the early disbursement only.
That way, the regular account would have 3 beneficiaries, and the special account would only have 2. Have the special account be the last account where money is withdrawn from since it was already given to the first person, and should be used last for expenses.
My $0.02 worth.

Rick dba Yuba
How could I arrange this as the bulk of her assets are in a single taxable account? I could open another taxable account and do that but her trust would still have to be updated. I dont' think there is any way of getting around that.
Could you just buy other comparable funds to her desired asset allocation? If she has her assets in vanguard funds, but fidelity ETFs or the like. That way the money is still separate but in the same account.

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Re: Early inheritance for one - how to equalize disbursement?

Post by smackboy1 » Fri Feb 14, 2020 6:22 pm

g2morrow wrote:
Fri Feb 14, 2020 10:50 am
Yes, I am the executor of her trust. Which puts me in a tough spot. I'm giving advice that would directly benefit me. Should the trust have a 'poison pill' in it about litigation? What other pitfalls should I look out for?
The term you're looking for is "in terrorem" a.k.a "no contest" clause. They are pretty common.

Better still, I would recommend that your mother make her ultimate decision and plans known to all the siblings together while she is alive and competent. That would reduce or eliminate any accusations that you've influenced her to change her plans in your favor.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

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Re: Early inheritance for one - how to equalize disbursement?

Post by bayview » Fri Feb 14, 2020 8:22 pm

jeffyscott wrote:
Fri Feb 14, 2020 11:33 am
I am the financial fairness police with our kids, because my mom was the opposite and that created issues among her children. As it happens, we are currently doing exactly this -- one child is getting a partial early inheritance, while 2 others are not (their choice). My method may be more complex than what you and your mother want to do, but here is the short version:

Whatever amount we give Child A as an early inheritance, we will give effective control of the same amount to Child B and and Child C and they may each decide what they want “their money” to be invested in. The money would remain in our accounts, but their share of it would be in a fund or funds of their choosing (or left with the default option, where they just have a proportional share of all of our investments).

The default option is to leave funds invested as they currently are. I determine our overall returns quarterly, so I just apply that return to the deferred gift balance each quarter for B & C. (They both have just left things this way). Balance in B & C "accounts" is tracked on a spreadsheet that all have access to.

So, for example, if we give Child A $50,000, Child B and C would each be assigned $50,000 of our money. Then if that $50,000 grows to, say, $80K before we actually give it to them, they would get $80K each at that time.

I then adjust percentages to each beneficiary on one Roth account to account for this, since child A got after tax money. In addition, if child B & C were given an equal amount now, the money would come out of a tax-deferred account and we would corresponding reduce Roth conversions. So the money they do not take is effectively added to Roth. If child A were given $50,000 and the balance of the indicated Roth were $200K, the child A gets 16.66% ($33,320), while the other two get 41.67% ($83,340). I can change these percentages each quarter.

An easier way to do about the same thing would be to, in this example, put $100,000 in a separate Roth account at the same time $50,000 was given to Child A. Then make the beneficiaries of that Roth account the other two children.

I have no idea about trusts, all our our money will pass via account beneficiaries. The only thing of significance that would be distributed via will is the proceeds from selling our house.
This makes complete sense to me, although in my case, it would be taxable accounts, making things simpler. I had thought of tracking by percentage of total amount earmarked for inheritance, but that doesn’t address the time value of money with different investments.

My late father-in-law simply disbursed the same amount to both kids at the same time, keeping track of it when needed via whichever tax form. So if he and MIL helped one kid with a house down payment, they gave the same amount to the other, even when not asked for.

But that works going forward, not in an attempt to untangle previous actions.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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g2morrow
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Re: Early inheritance for one - how to equalize disbursement?

Post by g2morrow » Fri Feb 14, 2020 9:08 pm

Thank you everyone for all the ideas and tips - I'll let her know what her options are, thanks again.

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Re: Early inheritance for one - how to equalize disbursement?

Post by Lafder » Sat Feb 15, 2020 10:48 am

KISS

Do not deal with percentages and increase in value that can be argued and legally dragged out by the sib resentful they are not getting an "equal amount" at the end.

Take the total inheritance amount, give sibling 2 and 3 60k off the top, divide the rest in 3. Keep it simple and use the 60k amount that was gifted years ago, in spite of growth that would have happened if each sib was gifted 60k at the same time and invested it rather than spent it.

This way the division of assets after making the 60k gifts to child 2 and 3 , is equal. Humans get very upset if things are not "equal"

"So currently, in my mothers' trust, she has it so that everything is divided equally and then the original investment (~60k) is taken from my sister and distributed to the other two. the trust was created before my sister sold her house. It seems fair enough and I see it was suggested multiple times here. Everything is good."

This method takes 60 k from your sister and gives the other 2 sibs 30k extra each. That seems to be not the same as giving sibs 2 and 3 60 k extra off the top and dividing the remaining amount in 3. Or at least my brain can not make that math work.

If the estate is divided in 3, then an amount is taken from sib 1, wouldn't the "fair" thing be that only 40k is taken from sib 1, and 20k given to sib 2 and 3 so that the original 60k gift is divided in 3 and distributed 20k to each, but sib 1 got theirs years ago?

I think the method that is most solid is to give sib 2 and 3 60k off the top to equalize the gift, then to show the remainder divided in 3. That equal division by 3 is hard to argue. The % calculations, and taking some after divided is all opening up a jilted sib to pursue making it equal.

Wording it as an equal distribution makes it more solid in my opinion and builds less resentmet.

No doubt sib 1 will be upset not to get as much in the end..........so it should be written in a solid way.

If written as mom wants it, that is fine. It may make up for any unfair growth that 60k could have had over the years.

In the end, dividing the estate in 3, then taking 60k from sib1 and dividing to sib 2 and 3, erases the early inheritance she got, and puts the other 2 30k ahead each. If the 60k is all taken back from sib 1 it should be divided by 3 and distribute to all to be equal!

But if mom writes it like that, it should be followed and there is no need to push to change it. To me that is an advantage to sibs 2 and 3 now. Though sib 1 had the advantage of having the $$ all of these years.

Check my math...........this concept of making equal has hurt my head since elementary school. Taking from one lowers their pile and raises the other..........so you are no longer working with the same numbers you started with to try to "make equal".

:0
lafder

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Re: Early inheritance for one - how to equalize disbursement?

Post by JGoneRiding » Sat Feb 15, 2020 3:32 pm

The math while interesting yo make "fair" is very complicated. The more complicated the more contestable.

I think the fact it's in trust makes it simple. Mom should have gotten 110k from kid. Simply deduct that amount from her share. Don't worry about the time value crap that wasnt the agreement with mom.

Financologist
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Re: Early inheritance for one - how to equalize disbursement?

Post by Financologist » Sat Feb 15, 2020 4:39 pm

tigers174 wrote:
Thu Feb 13, 2020 1:48 pm
I'd look at what percent of the total portfolio was given to the one person. Take that out of 33.3% and the remainder is what they get as inheritance.
+1

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Re: Early inheritance for one - how to equalize disbursement?

Post by LilyFleur » Sat Feb 15, 2020 7:02 pm

g2morrow wrote:
Fri Feb 14, 2020 10:50 am
Wow, lots of good info here - let me try and clear up a few things to hopefully answer some questions.

The money wasn't exactly given. It was an agreement equity share in a property. Essentially my parents put some money down so she could get a house with the agreement being, once the house was sold my parents would get the original 'investment' back plus 50% of the gain in property value. They had the exact same 'deal' with my brother who, after selling, fulfilled the agreement. My sister though took it upon herself to decide that it was an early inheritance for herself. My mother, father having past, didn't like it but decided it was better than ruining the relationship. She doesn't really need the money but she didn't' like how it was handled.

So currently, in my mothers' trust, she has it so that everything is divided equally and then the original investment (~60k) is taken from my sister and distributed to the other two. the trust was created before my sister sold her house. It seems fair enough and I see it was suggested multiple times here. Everything is good.

At least that's what I thought until she asked me to do some research to find out what the amount was that she should have received. Easy enough, public records property sold, etc.... Turns out if everything had gone as agreed upon, she should have given my parents 110k. I took 9% off the selling price to estimate the real estate transaction cost (yes, I estimated high) Now my mother really doesn't think its fair and asked for my guidance. She still does not want to ruin the relationship with her daughter over 'demanding' the money now but realizes its unfair to the other children and wants that addressed.

I'm going to suggest to her one of two ways:
1. the % of the total assets method. Whereas the 'early inheritance' was calculated to be 10% of total assets (made 10% up, have not done the calculations yet) So, sister would get ~23% (1/3-10%) and the two brothers would get ~38.5% (1/3 + 5%) - this would account for any growth - my mother is in good health and her nest egg could easily double before passing. So now we're talking about some serious money. So how does that get worded in a Trust? or should I not worry about it and leave it up to the lawyer?
2. Just change the number from 60k to 110k in current trust

I told my mother that it's her money and she can do as she wishes. She does not have to justify one way or another (in her trust) why the decision was made or what numbers were assumed to make the calculations, etc...

Yes, I am the executor of her trust. Which puts me in a tough spot. I'm giving advice that would directly benefit me. Should the trust have a 'poison pill' in it about litigation? What other pitfalls should I look out for?

TIA

ps - I was offered the same deal when younger and was lucky enough not to do it. I just didn't think doing business with family was such a good idea.
These types of situations (and worse) are why my son has asked me to consider appointing a corporate trustee and executor.
I have one child who understands the time value of money and one who never may understand it. Both very smart people, but in different areas.

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tarnation
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Re: Early inheritance for one - how to equalize disbursement?

Post by tarnation » Sat Feb 15, 2020 7:30 pm

Been through a similar thing, There is no way to make it equitable now other than make her pay up. Curious couldn't moms send her a 1099-C for bad debt? :twisted:
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